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BlackPearl Masters Fund Monthly Newsletter June 2019

In June, the BlackPearl Masters Fund returned -0.76%. One of our better performing strategies for the month was our long short variable beta strategy which generated a positive return of just under 4%. The strategy did well despite not having any significant exposure to high PE growth stocks and high yield stocks which lead the way during June on the back of a sudden drop in bond yields. Additionally, it was pleasing that the strategies performance was generated with a low net exposure.

Another strategy that was positive for the month was our global long short value strategy. Over the last 12 months the strategy has managed to generate positive returns on both the long and short book. The performance on the long side has been driven by a number of large cap European names including Henkal which is a chemical and consumer goods company headquartered in Germany. The position has been very profitable over the life of the strategy however after a recent earnings miss was cut back.

Adidas has been another position that has added positively to the strategy’s performance. Initially the strategy purchased Adidas based on what appeared to be a relative value mispricing. At the time Nike was trading 3.5 times revenue while Adidas only traded at 0.8x given its weaker position in America. Since the purchase the company appointed a new CEO and improved it’s marketing through the use of social media stars. The stock has appreciated materially and as a result the strategy has trimmed the position.

Over the last few months the global value long short strategy has been building out it’s systems in order to manage a larger short book. The strategies short book now contains over 200 positions which makes managing the book fairly complex. In order to better manage these positions a professional mathematician has been added to the team so as to optimise and build better management systems which should allow the strategy to increase its short trading capacity.

Another strategy that was slightly positive for the month was our long short global macro strategy which generated positive returns from a number of positions both domestically and abroad. These names included a short position in Vocus which fell after AGL quickly walked away from its takeover offer. Additionally, a short position in Challenger performed well as the stock fell 16% after the new CEO announced that the company would abandon its return on equity target that the company had maintained for the last 15 years.

Unfortunately, our other strategies did not perform as well this month and were a drag on performance. Volatility dropped away which meant our volatility strategy which we view as insurance cost us some money. Our long short Australian focused variable beta strategy was the weakest performer as names such as Super Cheap Auto and Nine Entertainment experienced a pull back.

Our Global Natural Resource Strategy was second weakest which we believe could be attributed to some tax loss selling in a number of positions held by the strategy. This included a selloff in battery lithium stocks which were sold down in June as Lithium, Graphite and Cobalt stocks as a group were sold down over 20%. A position in Alliance Materials was sold off over 30% despite the company receiving a capital investment from two strategic investors that now own over 25% of the company. While short term there is some negative sentiment in the sector, we believe that the long-term fundamental trend is still firmly intact given that China is now targeting 25% penetration of Electric vehicles by 2023.


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